Unassociated Document

The annual incentive compensation plan, known as the Executive Pay-for-Performance Plan (the “Plan”), of First United Corporation (the “Corporation”) is designed to recognize and reward employees of the Corporation and its affiliates for their collective contributions to the success of the Corporation. The Plan focuses on the financial measures that are critical to the Corporation’s growth and profitability. This document summarizes the elements and features of the Plan.

The Corporation’s CEO and certain other executive officers selected by the Compensation Committee are eligible to participate in the Plan. An employee who becomes a participant after the beginning of the Plan year, whether because he or she is a new hire or because he or she is appointed as an executive officer during a Plan year, is eligible for a prorated award for that Plan year based on the period of the Plan year during which he or she was a participant, provided that an executive must be employed by October 1 of a Plan year to be eligible for an award for that Plan year.

Participants must be an active employee of the Corporation or one of its affiliates as of the award payout date to receive an award (other than exceptions for death, disability and retirement contained herein).

The Plan is effective June 18, 2008. The Plan will be reviewed annually by the Compensation Committee of the Corporation’s Board of Directors and by Executive Management to ensure proper alignment with the Corporation’s business objectives and to revise, if necessary, the performance goals. The Corporation retains the rights as described below to amend, modify or discontinue the Plan at any time during the specified period. The Plan will remain in effect until terminated by the Board of Directors.

The Plan was adopted by the Board of Directors at the recommendation of its Compensation Committee. The Compensation Committee has the sole authority to interpret the Plan and to make or nullify any rules and procedures, as necessary, for proper administration. Any determination by the Compensation Committee will be final and binding on all participants.

Each participant will have a target incentive opportunity based on competitive market practice for his/her role. A participant’s award will be based upon a percentage of the participant’s base salary as of December 31 for the Plan year and will be calculated based on actual performance relative to the target levels. Threshold performance will pay out at 50% of the target award; target performance will pay out the expected target award, and stretch performance will pay out at 125% of target award. Payouts for performance below the threshold will be zero. Actual payouts for each performance goal will be pro-rated between threshold and target levels and target and stretch levels to reward incremental improvement. The range of awards can go from 0% of target (not achieving minimal performance) to 125% of target for exceptional performance. For goals that do not meet threshold performance, there will be no award for that component. The target incentives for a given Plan year will be disclosed in an Appendix A to this Plan.

In order for the Plan to “activate” in a Plan year, the Corporation must attain the threshold levels stated in an Appendix A to this Plan for that Plan year. If the threshold levels established for that year are not met, then the Plan will not pay out any awards for that Plan year, regardless of performance on other goals.

Below is an illustration for a fictional executive with a base salary of $125,000 and an incentive target of 20% of base salary ($25,000), where the performance measures are return on equity (ROE), earnings per share (EPS), efficiency ratio, operating income as a percentage of net revenue, and growth of Community Oriented Business Owners (COBO) loan and deposit relationships. Weight and actual performance are fictional for illustration.

Participant Goals								Performance and Payout
Performance Measure	Performance Goal threshold/target/stretch		Weight			$		Actual Performance		Payout Allocation (0% - 125%)			Payout ($)

ROE		12.10% /13.44%/ 14.78%		30	%	$	7,500		Threshold		50	%	$	3,750

EPS		$2.21 /$2.35/ $2.59		30	%	$	7,500		Target		100	%	$	7,500

Efficiency Ratio		67.98% /61.80%/ 56.62%		15	%	$	3,750		Threshold		50	%	$	1,875

Operating Income as % of Net Revenue		26.1% / 29% / 31.9%		15	%	$	3,750		Stretch		125	%	$	4,688

Growth of COBO Loan and Deposit Relationships		4.5% / 5% / 5.5%		10	%	$	2,500		Below Threshold		0	%	$	0

TOTAL				100	%	$	25,000	71.3% payout					$	17,813

Awards for a Plan year will be paid as a cash bonus before the end of the first quarter following the Plan year. Awards will be calculated based on actual performance relative to the target levels. Awards will be taxable income to participants in the year in which the award is actually paid and will be subject to withholding for required income and other applicable taxes.

Any rights accruing to a participant or his/her beneficiary under the Plan shall be solely those of an unsecured general creditor of the Corporation. Nothing contained in the Plan, and no action taken pursuant to the provisions hereof, will create or be construed to create a trust of any kind, or a pledge, or a fiduciary relationship between the Corporation and its affiliates, on the one hand, and a participant or any other person, on the other hand. Nothing herein will be construed to require the Corporation to maintain any fund or to segregate any amount for a participant’s benefit.

The Corporation has developed the Plan based on existing business, market and economic conditions. If substantial changes occur that affect these conditions, the Corporation may add to, amend, modify or discontinue any of the terms or conditions of the Plan at any time.

Notwithstanding any other provision of this Plan to the contrary, however, the Corporation may amend, modify or terminate this Plan, without the consent of the participants, as the Corporation deems necessary or appropriate to ensure compliance with any law, rule, regulation or other regulatory pronouncement applicable to the Plan, including, without limitation, Section 409A of the Internal Revenue Code and any related regulations or other guidance promulgated with respect to Section 409A of the Code.

If a participant changes his/her role or is promoted during the Plan year, he/she will be eligible for the new role’s target award on a prorata basis (i.e. the award will be determined based on the number of months employed in each position.)

Except in the case of a termination due to a participant’s death, disability or retirement as discussed below, no incentive award will be granted to any participant whose employment with the Corporation or one of its affiliates is terminated for any reason. Moreover, to encourage employees to remain in the employment of the Corporation, a participant must be an active employee of the Corporation or one of its affiliates on the date the incentive is paid to receive an award.

If a participant is disabled by an accident or illness and is disabled long enough to be placed on long-term disability under the Corporation’s long-term disability policy, his/her award for the Plan year shall be prorated so that no award will be earned during the period of long-term disability.

In the event a participant’s employment is terminated due to death or disability (as defined in the Corporation’s long-term disability policy), the Corporation will pay to the participant’s estate or to the participant (as the case may be) the pro rata portion of the award that had been earned by the participant through the date of termination.

Participant’s who retire during the Plan year will receive a pro-rata portion of the award based on the retirement date. For purposes of the Plan, the term “retire” means a participant’s voluntary termination of his or her employment (other than by reason of death or disability) after (i) reaching 60 years of age and (ii) completing 10 years of service with the Corporation.

In the event the Corporation is required to prepare an accounting restatement due to the material noncompliance of the Corporation with any financial reporting requirement under applicable securities laws or applicable accounting principles, then each participant who received an award under the Plan shall return to the Corporation his or her award to the extent the accounting restatement shows that a smaller award should have been paid; provided, however, that, notwithstanding the foregoing, no participant or former participant shall be required to return any portion of any award to the extent it was paid more than three years prior to the date the Corporation determines that a restatement is required. To the extent a participant has deferred into a deferred compensation plan of the Corporation an amount that an accounting restatement shows should not have been awarded, such participant’s account under the deferred compensation plan shall be adjusted to reflect such improperly-awarded amount (and earnings and losses thereon).

If there is any ambiguity as to the meaning of any terms or provisions of this Plan or any questions as to the correct interpretation of any information contained herein, the Corporation’s interpretation expressed by the Compensation Committee will be final and binding. It is the intent of the Corporation that this Plan and each award hereunder comply with the applicable provisions of Section 409A of the Internal Revenue Code, and the Plan shall be so interpreted and administered accordingly, including with respect to any restrictions or other limitations imposed by Section 409A of the Internal Revenue Code on the amount and timing of distributions payable under an award.

The altering, inflating, and/or inappropriate manipulation of performance/financial results or any other infraction of recognized ethical business standards by a participant will subject that participant to disciplinary action up to and including termination of employment. In addition, that participant’s eligibility for an award under the Plan shall be revoked.

If it is determined (by the independent members of the Board of Directors) that a participant has willfully engaged or is willfully engaging in any activity that was or is injurious to the Corporation or its affiliates, then the participant shall forfeit eligibility for an award for the Plan year in which such determination is made. If it is determined that such activity occurred during a Plan year for which the participant received an award under the Plan, then, subject to any provision of the Corporation’s deferred compensation plan that does not permit the forfeiture of amounts deferred into such plan, the participant shall return the award to the Corporation.

The Plan will not be deemed to give any participant the right to be retained in the employ of the Corporation or any of its affiliates, nor will the Plan interfere with the right of the Corporation or an affiliate to discharge any participant at any time.

In the absence of an authorized, written employment contract, the relationship between a participant and the Corporation and its affiliates is one of at-will employment. The Plan does not alter the relationship.

Each provision in this Plan is severable, and if any provision is held to be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions shall not, in any way, be affected or impaired thereby.

As a condition to participation in the Plan and the receipt of any award, each participant shall sign and deliver to the Corporation an acknowledgement in which he or she agrees to the terms and conditions of the Plan.

2008 Short-Term Incentive Opportunities (% of Base Salary)
Tier	Below Threshold			Threshold (50% of Target)			Target (100%)			Stretch (125% of Target)
CEO		0	%		20	%		40	%		50	%
Tier I		0	%		15	%		30	%		37.5	%
Tier II		0	%		10	%		20	%		25	%

For Plan year 2008, the performance goals are return on equity (ROE), earnings per share (EPS), efficiency ratio, operating income as a percentage of net revenue, and growth of Community Oriented Business Owners (COBO) loan and deposit relationships. The following table shows the performance goals at threshold, budget and stretch for Plan year 2008:

				2008 Performance Metrics
Performance Measures	Wt.			Threshold (90% of target performance)			Target (100%)			Stretch (110% of target performance)
ROE		30	%		12.10	%		13.44	%		14.78	%
EPS		30	%	$	2.21		$	2.35		$	2.59
Efficiency Ratio		15	%		67.98	%		61.80	%		56.62	%
Operating Income as % of Net Revenue		15	%		26.1	%		29	%		31.9	%
Growth of COBO Loan and Deposit Relationships		10	%		4.5	%		5	%		5.5	%